Open AccessThe Effect Of Working Capital Management On Firms Profitability: Empirical Evidence From An Emerging Market
Author(s) -
Melita Charitou,
Maria Elfani,
Petros Lois
Publication year - 2010
Publication title -
journal of business and economics research
Language(s) - English
Resource type - Journals
eISSN - 2157-8893
pISSN - 1542-4448
DOI - 10.19030/jber.v8i12.782
Subject(s) - working capital , profitability index , creditor , business , stock exchange , cash conversion cycle , emerging markets , finance , capital market , empirical evidence , free cash flow , cash flow , monetary economics , economics , operating cash flow , philosophy , epistemology , debt
In this study, we empirically investigate the effect of working capital management on firm’s financial performance in an emerging market. We hypothesize that working capital management leads to improved profitability. Our data set consists of firms listed in the Cyprus Stock Exchange for the period 1998-2007. Using multivariate regression analysis, our results support our hypothesis. Specifically, results indicate that the cash conversion cycle and all its major components; namely, days in inventory, days sales outstanding and creditors payment period - are associated with the firm’s profitability. The results of this study should be of great importance to managers and major stakeholders, such as investors, creditors, and financial analysts, especially after the recent global financial crisis and the latest collapses of giant organizations worldwide.